India only growth market option
Chennai, May 2015
Luxury carmaker BMW entered India in early 2006 and set up its manufacturing plant at Mahindra World City near Chennai. Even though BMW’s entry into India was at least a decade late over another global luxury brand, Mercedes Benz, the company has succeeded in establishing a sizeable presence in the Indian luxury car market. It is not only focused on increasing localisation and ‘Make in India’, it is also in the process of establishing India as a global sourcing hub for components. Philipp von Sahr, president, BMW Group India, opens up with Financial Chronicle on the BMW’s operations and opportunities in the Indian market and the way forward. Excerpts from the interview :
It has been eight years since BMW set up its India operations. How has the journey been so far?
We started our operations in India towards the end of 2006 and the beginning of 2007. In the first two years, the company was in the process of establishing itself in the country.
The year 2009 was focused more on getting the plant ready and building the brand, besides selecting the right models to be launched here.
Between 2010 and 2012 was the growth phase, when we focused on increasing volumes and capacities. From 2013 onwards, we are focusing on long term sustainability of our growth in the Indian market.
We have so far invested Rs 490 crore in our Indian operations, including Rs 100 crore over the past one year, in establishing the plant, a training centre in Gurgaon and also in our sales and service network.
While the bulk of the investment has gone into the plant, from January 1 this year, we are much more localised in terms of engines, gearboxes and wiring harness, among others.
With the new government encouraging 'Make in India', our focus too has been on that front. As a result, we are today much more flexible and much more efficient and have much better scale.
The training centre alone has facilities to provide 18,000 training mandays to offer skills for mechanics as well as for sales and for dealerships. If people with the right skills are not available, we need to train them. As a result, our localization level has reached 50 per cent and almost 95 per cent of the BMWs now seen on Indian roads are produced at the Chennai plant. The plant has an annual capacity of 14,000 units and we have two assembly lines and operate one shift. If there is a need, we can invest in an additional shift.
Has the company achieved all the milestones that were set initially for the Indian market?
The company had clear plans when it entered Indian market. In fact, the expectation was very high. But the recent slowdown and the rate of economic progress brought down those expectations a bit.
But we are now clear that we should not see India as one country for investment, but as a continent. At the same time, we are absolute in our commitment to the long-term growth of the Indian market.
Globally, China is cooling down, the US and Europe are no longer growing and Russia is impacted by the developments in Ukraine. That leaves only India as a growth market option.
How big is the Indian luxury car market and how well is it growing?
The Indian luxury car market is just one per cent of the total passenger car market of the country. This comes to about 30,000– 35,000 cars per annum or whatever the main three luxury car brands are offering.
At the same time, India is a market where the number of rich is high, but (they are) not yet driving a premium car. Either they are spending on their daughter’s wedding or their kids’ higher education. There is a lot of untapped potential and we are now focused on ways to tap this untapped potential.
Over the past few years, we have witnessed a race between BMW and Mercedes Benz to become the No.1 luxury car brand in India. Is the race still on?
If there is one competitor for us globally, it has been Mercedes Benz and no one else. Benz started in India 10 years before us. When we came and established ourselves here, there was a race. It was more because of Audi and its statements.
However, in 2012, we moved out of this volume race and the compulsion of offering huge discounts on products. We are now focused clearly on long term sustainable growth.
Within the BMW Group, how have the different brands – BMW, Mini and Rolls Royce – performed in India?
Yes, the three are different brands. While I cannot comment on Rolls Royce, both BMW and the Mini are two vibrant brands.
While BMW has made its presence here in India since 2007 or so, Mini has proved that a small car can also be a premium car. Mini came into India in 2011 and has established a good presence within these four years and we have opened exclusive dealerships for it in Delhi, Mumbai, Bangalore and Hyderabad.
Within Mini, there are options available like the 3-door and 5-door, among others. While generally, Indians want a large car cheap, Mini is a small car but expensive. There has to be a difference in approach. We are looking at that.
Overall, for the BMW brand, while the volumes will continue to come from the metro cities, we are now getting additional volumes from tier 2 cities. Cities like Vijayawada, Coimbatore and Rajkot will increasingly contribute additional volume.
When the company entered the ‘used car’ business in 2011, it was said this business segment will contribute 10 per cent of the group’s overall revenues in India. What is the status now?
The used car business is still at a low level in India, but with lot of potential. Hence we felt the need to launch ‘BMW Premium Selection’ (BPS) to address the needs of the used car market and this initiative has certain promises, guarantees and warranties akin to a new car.
This also becomes a good business option for our metro market car dealers. We now have 11 BPS units across the country and we will keep expanding the concept to newer markets, especially to those cities that already have a high number of BMWs on the roads.
Sourcing of components and increased localisation of BMW vehicles have been two key areas of for the group. Can you throw more light on what has been achieved so far and what the plans are going forward?
As already explained, our localisation has now touched 50 per cent in India. Our group’s International Purchasing Office (IPO), established in Gurgaon, has been focusing on sourcing components for the global requirement of BMW plants.
There are over 30 suppliers who supply components as of now and they are concentrated in three hubs – Delhi, Mumbai–Pune and Greater Chennai regions.
The market for premium motorcycles is picking up in India. There was an announcement of a joint initiative by BMW and TVS Motor some time back. What is the current status of those plans?
Even though I am not the authorised person to speak on this topic, all I can say is, there is a 'strategic co-operation agreement' between the two companies. It is progressing very well and the first product, through this co-operation, will roll out next year.
Source: Financial Chronicle